# Comps vs DCF Reconciliation The sales-comparable approach indicates a value of $2,913,337 ($161,852/unit), while the DCF model yields $3,625,118, creating a gap of $711,781 or 24.4% above the comp-supported value. This divergence reflects the model's embedded assumptions—particularly the 40-basis-point cap rate compression from 6.60% to 6.20% and sustained 3.00% annual rent growth—which effectively capitalize Phoenix's strong Sunbelt migration tailwinds and multifamily supply-demand imbalance into terminal value. The DCF's heavy reliance on exit assumptions is evident in the terminal value comprising 75% of total value, meaning the model is pricing in significant market appreciation rather than current cash flow. To justify the $3,200,000 asking price through comps alone, the market would need to support $177,778/unit, a 9.8% premium to observed transactions that appears unsupportable absent trophy-asset characteristics or significant value-add repositioning potential. The asking price sits 9.8% above comp-indicated value but 11.7% below the DCF, suggesting the seller is attempting to capture a forward-looking premium that recent Phoenix transactions do not yet reflect. Given the comp-DCF wedge and the model's sensitivity to terminal assumptions, the asking price exceeds demonstrable market support and should be countered at $2,850,000–$2,900,000 to align with observable transaction evidence while allowing modest upside for Phoenix's favorable fundamentals.

# Deal Assessment vs Asking Price The asking price of $3,200,000 sits $287,000 below the DCF-indicated value of $3,625,118, representing an 11.7% discount to modeled fair value, though it trades $287,000 above the sales-comp indication of $2,913,337. To justify the asking price under the assignment's required 8.0% discount rate, annual rent growth would need to run at approximately 1.8%—well below the modeled 3.0% and considerably softer than Phoenix's recent trajectory of population inflows, job creation in technology and healthcare sectors, and constrained multifamily supply in established urban corridors like Camelback. Alternatively, to produce the comp value of $2,913,337 if rent growth is held at 3.0%, the discount rate would need to be reduced to approximately 9.2%, a level that exceeds typical multifamily return thresholds and fails to reflect the market's current risk profile. Neither scenario appears reasonable: Phoenix fundamentals support the 3.0% rent growth assumption given sustained demand from California migration and ASU graduate retention, while the 8.0% discount rate appropriately prices stabilized multifamily risk in a primary Sunbelt market. Given the DCF upside, strong market tailwinds, and the property's value-add potential through unit renovations and operational improvements, the deal prices **fair-to-light** at ask. A negotiated price target of **$3,100,000** ($172,222 per unit) would provide additional margin of safety while remaining attractive to the seller relative to comp indications, delivering a 16.9% discount to DCF value and a 6.8% going-in cap rate.

# Biggest Assumption & Sensitivity The dominant assumption driving valuation is the exit cap rate of 6.20%, which sits 40 basis points below the going-in cap of 6.60% and reflects continued cap rate compression in Phoenix's supply-constrained multifamily market. Sensitivity analysis reveals that every 50 basis points of exit cap rate movement translates to approximately 11–13% change in terminal value, and given that the terminal value of $3,950,393 represents 75% of the DCF-derived enterprise value, exit cap rate selection is the single most influential lever in the model. Under a conservative 100% NOI pass-through scenario where the exit cap rises to 6.69% (assuming full Treasury rate transmission), the DCF value contracts materially, narrowing the gap between modeled value and the $3,200,000 asking price. The key upside driver specific to Phoenix is sustained in-migration from high-cost coastal markets, which has supported rent growth above the national average and tightened vacancy rates across the metro, particularly in central submarkets like Camelback Corridor where this asset is located. To justify the asking price of $3,200,000—currently 11.73% below the DCF value of $3,625,118—rent growth would need to decelerate to approximately 1.5–2.0% annually, or the exit cap would need to expand to roughly 6.75%. Conversely, if Phoenix fundamentals remain robust and rent growth accelerates to 4.0–5.0% (in line with recent trailing performance in urban infill locations), the deal becomes significantly more attractive, with DCF value exceeding $4.0 million and the asking price representing a 20%+ discount to intrinsic value. Given the asset's below-market rents, value-add repositioning potential, and Phoenix's structural tailwinds, the base-case 3.0% rent growth assumption appears conservative, supporting a recommendation to proceed with due diligence at the current asking price.